Credit Card Glossary
Annual Savings Rate
Your annual savings rate is a just a way of expressing how much you would save by transferring your credit card balance to a credit card with a low balance.
Let’s take an example and compare two credit cards that each have a $2,500 balance on it.
Terms Credit Card 1 Credit Card 2
Average monthly balance $2,500 $2,500
APR 0.18 0.14
Annual Finance Charges $ 450 $ 350
Annual Fee $ 20 $ 0
Total Cost $ 470 $ 350
What your annual savings rate will end up being will vary depending on the amount of your balance, the interest rate that you are offered by the credit card company and the way your finance charge is calculated.
Here is another example of what you can expect to pay that illustrates the difference between a card with high rate and a card with a low-rate.
Suppose you have applied for a credit card but are only offered a high rate credit card of 23.99%. If you charge $1,000 and make no further charges and pay only the minimum each month the payment that you make will start at $51 and slowly reduce its way down to $10 a month over time. In total you will end up making 77 payments over six years and five months. By then, you will have paid $573.59 in interest just for the privilege of using a credit card.
By contrast let’s say that you have been accepted for a low rate card with only a 9.9 percent fixed rate. If you charge the same $1000 you minimum monthly payment will start at $50.41 and then reduce itself down to $10 a month just like the high interest card. However you will make 17 fewer payments paying it off in six years and pay only $176 in interest. This is a difference of $400 less in interest that you will pay if you opt for the card with low interest rates.